Alliance Rekindles Union with Blackstone

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Alliance Data Systems has dropped its nearly week-old lawsuit against Blackstone Group now that its shaky merger looks to be on again.

On Friday Alliance said it was confident Blackstone will work toward completing its acquisition of the credit-card processor. “Blackstone has in its court filings, correspondence with federal regulators, and public statements said that it is committed to working toward the closing of its acquisition of the company, including working with Alliance Data on proposals directed to resolving regulatory issues,” Alliance stated in a press release.

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The announcement flies against the trend of similar suits against potential acquirers blamed for collapsing deals, such as those brought by Sallie Mae and United Rentals recently. It comes just over a week after Alliance sued the private-equity firm for what it considered baseless reasons for backing out of the acquisition.

The companies’ relationship began in May, when Blackstone agreed to buy Alliance for $7.8 billion, including the assumption of certain debt. But it fell apart at the end of January, when Blackstone said the necessary approvals from the Office of the Comptroller of the Currency — one of the conditions of the acquisition — would likely not be received.

Blackstone’s notice to Alliance stated that the OCC was “demanding that extraordinary measures be taken by ADS, Holdco, and various Blackstone entities in connection with the Change in Control Notice” that “represent operational and financial burdens on ADS, Holdco, and Blackstone that cannot be reasonably assumed.”

Subsequent communications between the firms revealed that Blackstone was unwilling to satisfy the requirements specified in the OCC letter. Alliance also claimed that Blackstone “expressed its belief that alternative solutions that would be acceptable to Blackstone would not satisfy the OCC, and therefore that further negotiations with the OCC would be futile.”

On January 30, Alliance filed its suit against Blackstone’s affiliates accusing them of failing to use good faith or reasonable best efforts to negotiate or otherwise attempt to reach a resolution and obtain required approvals from the OCC. However, Alliance has changed its mind: “In light of Blackstone’s confirmation of its commitment to work to consummate the merger, the company has at this time withdrawn its lawsuit without prejudice,” Alliance stated.

Alliance said it has identified various potential solutions to OCC-related issues that Blackstone has said are impediments to completing the merger. “There can be no assurance, however, that an acceptable solution will be obtained or that the merger will be completed,” Alliance warned.